(Bloomberg) — Wall Street kicked off the week with small moves in stocks, bonds and the dollar ahead of inflation figures that will help define the scope and timing of Federal Reserve rate cuts.
Most Read from Bloomberg
Less than 24 hours before the consumer price index, the S&P 500 wavered. While the data is expected to underscore further disinflation, traders remained unwilling to commit to big bets. That sense of caution also prevailed after five straight weeks of gains that drove equities above overbought levels, triggering some calls for at least consolidation.
“Keeping the age-old adage in mind that ‘trees don’t grow to the sky,’ we think it’s important to keep the party hats in the box for now,” said John Stoltzfus at Oppenheimer Asset Management. “We remain positive on stocks, view bonds as complimentary to stocks for prudent diversification and look for a further broadening of the equity rally which emerged from the lows of late October.”
The S&P 500 lost steam after approaching 5,050. The Nasdaq 100 underperformed, led by declines in Microsoft Corp., Apple Inc. and Tesla Inc. Chip designer Arm Holdings Plc soared 29%. Nvidia Corp. briefly overtook Amazon.com Inc. in market value. Treasury 10-year yields were little changed at 4.17%. Bitcoin hit $50,000.
“Most people will be fixated on this week’s inflation numbers, but there’s also a potential tug-of-war between how extended the current market rally may be versus the buzz surrounding the S&P 500 topping 5,000,” said Chris Larkin at E*Trade from Morgan Stanley. “While it’s true the S&P has often pushed higher after crossing ‘round-number’ thresholds like this one, it hasn’t always done it after the type of rally that has unfolded since late October.”
The S&P 500 is approaching a technical roadblock after eclipsing 5,000 for the first time — triggering a contrarian sell signal for stocks on Friday, according to Piper Sandler’s Craig Johnson.
“The current state of the equity market can be summed up by the 1981 hit from 38 Special: “Hold on loosely, but don’t let go’,” Johnson wrote in a note to clients. “To be clear, we are not bearish on the stock market. However, as ‘bad breadth’ lingers, the market is ripe for a healthy correction, likely in the range of 5% to 10%.”
The gauge’s quick journey to 5,000 has already left the consensus Wall Street target for 2024 tracked by Bloomberg — 4,819.40 as of Friday — in the dust.
Because of the old adage that “large round numbers act like rusty doors and require several attempts before finally swinging open,” investors now wonder if it is time to take some profits, according to Sam Stovall at CFRA.
If history is any guide, while short-term digestions of gains have indeed occurred, they have been fairly short in duration, he noted.
When looking at the S&P 500’s cumulative return in the 3-, 6-, and 12-months after crossing above the 100, 500, 1,000, 2,000, 3,000, and 4,000 levels, the gauge posted average price gains of 4.7%, 9.8%, and 12.3% — and rose in price during 83% of all periodic observations, Stovall said.
“This run to 5,000 has been supported by the fundamentals, with a soft landing looking increasingly likely and earnings season nicely exceeding expectations after a messy start,” said Jeffrey Buchbinder at LPL Financial. While the current valuation seems high, “it’s reasonable if the US economy avoids recession and earnings grow double-digits this year — which is not out of the question.”
The S&P 500 is currently trading around 20 times forward earnings — a level it has only hit in two other periods over the last 25 years: the dot-com bubble and the post-pandemic bull market, said Nicholas Colas at DataTrek Research.
“Valuations get to these levels when investors have high confidence in three factors: monetary/fiscal policy, the US/global banking system, and strong corporate earnings,” Colas added. “Even with 2022’s bear market, investors feel that the future is highly predictable. It will likely take an exogenous shock to change their minds.”
To Rob Swanke at Commonwealth Financial Network, some caution is warranted at the current valuation levels.
“I wouldn’t say we’re in bubble territory, but the market is pricing closer to perfection now and companies will have to continue to hit high earnings targets in 2024, something they didn’t have to do in 2023,” he added.
Last week’s news and data reinforced the four drivers of this bull market: Fed rate cuts by May, solid economic growth, continued disinflation and strong earnings, according to Tom Essaye at the Sevens Report.
“It’s important to acknowledge that this rally has been driven by actual good news and bullish expectations being reinforced by actual data,” Essaye said. “At the same time, the risks that kept investors worried in October (and even throughout 2023) haven’t been vanquished — they simply haven’t shown up yet.”
The annual CPI is forecast to have dropped to 2.9% in January from 3.4% the prior month, according to consensus estimates of economists surveyed by Bloomberg. That would be the first reading below 3% since March 2021.
A survey conducted by 22V Research showed 51% of investors polled think the market reaction to CPI on Tuesday will be “risk-on” — and only 19% said “risk-off”.
US consumer expectations for inflation over the medium term fell to the lowest level since at least 2013, a Fed Bank New York survey showed Monday. Fed Governor Michelle Bowman reiterated the central bank’s benchmark lending rate is in a good place to keep downward pressure on inflation, and she doesn’t see a need to ease policy soon. Fed Bank of Richmond President Thomas Barkin said it’s premature to believe inflation pressures are over.
Traders started pricing in that the Fed will carry out just four — or five at the most — quarter-point rate cuts in 2024, only slightly more than the three penciled in by policymakers. That’s a sharp shift from the end of last year, when futures traders were wagering on seven such moves.
“It’s important not to lose sight of the big picture, which is that continued disinflation should allow the central bank to start easing this year,” said Mark Haefele at UBS Global Wealth Management. “This is a significant change in the investment landscape, so we think it’s less important whether the Fed cuts three, four, or five times this year.”
Even if the Fed doesn’t scale back interest rates, the S&P 500 can still extend its climb this year, according to Bank of America Corp.’s Savita Subramanian.
“Recall that our constructive view on stocks is not because of what the Fed will do, but what the Fed has already done,” she added, referring to central bank taming inflation without a recession.
Corporate Highlights:
The Federal Reserve slapped Citigroup Inc. with a series of demands to change the way it measures the risk of its trading partners, according to a Reuters report, the latest blow to Chief Executive Officer Jane Fraser’s turnaround effort.
Diamondback Energy Inc. agreed to buy fellow Permian Basin driller Endeavor Energy Resources LP in a $26 billion deal that’ll create the largest explorer focused exclusively on the western hemisphere’s busiest oil field.
Gilead Sciences Inc. agreed to purchase CymaBay Therapeutics Inc., a developer of an experimental liver disease drug, for $4.3 billion in equity value.
Hewlett Packard Enterprise Co. is seeking as much as $4 billion from Autonomy Corp.’s former bosses following a London judge’s finding that they fraudulently boosted the value of the company before its sale.
Key Events this Week:
Germany ZEW survey expectations, Tuesday
US CPI, Tuesday
Eurozone industrial production, GDP, Wednesday
BOE Governor Andrew Bailey testifies to House of Lords economic affairs panel, Wednesday
Chicago Fed President Austan Goolsbee speaks, Wednesday
Fed Vice Chair for Supervision Michael Barr speaks, Wednesday
Japan GDP, industrial production, Thursday
US Empire manufacturing, initial jobless claims, industrial production, retail sales, business inventories, Thursday
ECB President Christine Lagarde speaks, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
Fed Governor Christopher Waller speaks, Thursday
ECB chief economist Philip Lane speaks, Thursday
US housing starts, PPI, University of Michigan consumer sentiment, Friday
San Francisco Fed President Mary Daly speaks, Friday
Fed Vice Chair for Supervision Michael Barr speaks, Friday
ECB executive board member Isabel Schnabel speaks, Friday
Some of the main moves in markets:
Stocks
The S&P 500 was little changed as of 4 p.m. New York time
The Nasdaq 100 fell 0.4%
The Dow Jones Industrial Average rose 0.3%
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0774
The British pound was unchanged at $1.2628
The Japanese yen was little changed at 149.34 per dollar
Cryptocurrencies
Bitcoin rose 4.2% to $50,156.96
Ether rose 5.6% to $2,643.7
Bonds
The yield on 10-year Treasuries was little changed at 4.17%
Germany’s 10-year yield declined two basis points to 2.36%
Britain’s 10-year yield declined three basis points to 4.06%
Commodities
West Texas Intermediate crude rose 0.2% to $77.03 a barrel
Spot gold fell 0.2% to $2,020.19 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alexandra Semenova, Michael Mackenzie, Liz Capo McCormick, Ye Xie and Denitsa Tsekova.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
